Reason of Greek Debt Crisis

Among the national sovereign debts of the world, the Greek debt crisis has always been a focus of people. In a country of only 130,000 square kilometers and a population of less than 11 million, the people and the government have suffered very heavy debts. What is more serious is that Greece, as a member of the eurozone, will contain the European economy if their debts are not effectively resolved. This will be a serious consequence because the EU is not a country and the EU is composed of twenty-eight member states.

Although this happened in 2009, this influence has continued to this day. In this article, we will discuss the root causes of the Greek debt crisis, the measures that Greece needs to take, and the prospects for the future. The reason for the Greek debt crisis is that economic competitiveness is relatively weak, the level of economic development is relatively low in the eurozone countries, and the economy is mainly supported by tourism.

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At that time, Greece had just entered the eurozone. According to the Maastricht Treaty signed by some countries of the European Community in 1992, members of the European Economic and Monetary Union must meet two key criteria, namely that the budget deficit cannot exceed 3% of GDP and the debt ratio is low. 60% of GDP. However, Greece, which has just joined the alliance, sees itself far from these two standards. This is not a good thing for Greece and the Eurozone. Especially when the euro began to depreciate when it first came out.

At this time, Greece turned to the US investment bank 'Goldman Sachs.' Goldman Sachs designed a “currency swap transaction” for Greece, which masked a public debt of up to 1 billion euros for the Greek government, thus making Greece meet the standards of the eurozone member states. The specific practice known as “Financial Innovation” (Liu 1) is that Greece issues a $10 billion dollar for 10-15 years government bond, which is listed in batches. The Treasury is responsible for converting the US dollar provided by Greece into Euros.

When the debt expires, it will still be exchanged back to the US dollar by Goldman Sachs. In addition to this loan, Goldman Sachs has also designed a variety of methods for Greece to increase its debt ratio without increasing its debt ratio. For example, the future income of the national lottery industry and aviation tax will be used as collateral for cash. This method of mortgage redemption is not a liability in statistics, but it becomes a sale, that is, securitization of bank claims. These services and borrowings from Goldman Sachs are certainly not provided in vain.

Goldman Sachs received a commission of up to 300 million euros. Goldman Sachs knows that Greece will enter the eurozone through this means, and its economy will inevitably have long-term concerns, and ultimately there will be insufficient ability to pay. In order to prevent its own investment, Goldman Sachs bought a 20-year CDS “credit default swap” insurance from a German bank to make up for the deficit when the debt was paid.

Then again, after the outbreak of the financial crisis, the number of tourists from all over the world has decreased drastically, which has caused a great impact on Greece. In addition, Greece exports fewer imports, and there is a long-term trade deficit in the eurozone, resulting in capital outflows, thus borrowing money.